Productivity Measurement Analysis Series – United States, Q2 2026
by Martin Fleming
In the second quarter of 2026, nonfarm business sector labor productivity increased at a seasonally adjusted annual rate of 1.4% from the prior quarter, the U.S. Bureau of Labor Statistics reported on August 6th. Output increased 1.7% and hours worked increased 0.3%. From Q2 2025 to Q2 2026, nonfarm business sector labor productivity increased 2.2%.
| Sector |
Quarter-on-year ago comparison, SAAR (Q2 2025) |
Quarter-on-quarter comparison (Q1 2026) |
Pre-COVID-19 comparison, SAAR (Q4 2019) |
|---|---|---|---|
| Nonfarm Business | |||
| Labor Productivity | 2.2% | 1.4% | 2.1% |
| Unit Labor Cost | 1.4% | 1.3% | 2.8% |
| Manufacturing | |||
| Labor Productivity | 0.9% | 1.9% | 0.5% |
| Unit Labor Cost | 3.5% | 0.0% | 3.7% |
| Nonfinancial Corporate* | |||
| Labor Productivity | 3.7% | 2.0% | 2.4% |
| Unit Labor Cost | -0.2% | 1.1% | 2.7% |
* Nonfinancial Corporate sector data lag one quarter. Data are for Q1 2026 and comparison is with Q1 2025 and Q4 2025.
Unit labor costs in the nonfarm business sector increased 1.3% in Q2 2026, reflecting a 2.7% increase in hourly compensation and a 1.4% increase in productivity. Unit labor costs increased 1.4% over the prior four quarters.
Manufacturing sector labor productivity increased 1.9% in Q2 2026 from the prior quarter, as output increased 4.6% and hours worked increased 2.6%. Unit labor costs in the manufacturing sector were unchanged in Q2 2026 from the prior quarter, reflecting a 1.9% increase in hourly compensation and a 1.9% increase in productivity.
The very notable difference between productivity and cost conditions in the durable goods and nondurable goods sectors continued in Q2. The durable goods sector is showing more robust output and productivity growth along with much stronger increases in hourly compensation.
By sector, durable goods sector labor productivity increased 2.7% in Q2 2026 from the prior quarter, as output increased 7.3% and hours worked increased 4.5%. Unit labor costs in the sector decreased 1.6% in Q2 2026 from the prior quarter, reflecting a 1.0% increase in hourly compensation and a 2.7% increase in productivity.
By comparison, in the nondurable goods sector, labor productivity increased 2.0% in Q2 2026 from the prior quarter, as output increased a modest 1.5% and hours worked decreased 0.5%. Unit labor costs in the sector increased 1.1% in Q2 2026 from the prior quarter, reflecting a 3.1% increase in hourly compensation and a 2.0% increase in productivity.
Nonfinancial corporate sector (approximately 65% of the U.S. economy) labor productivity increased 1.4% in Q1 2026 from the prior quarter, as output increased 2.8% and hours worked increased 1.4%. Unit labor costs increased 0.7%.
The possibility of a productivity revival has been much discussed in recent quarters. Following a period of instability in early 2025, durable goods manufacturing sector growth and hours worked has strengthened while growth elsewhere has moderated – nondurable goods, services and nonfinancial corporates.
Following pandemic-induced wage increases, hourly compensation growth has slowed with price inflation now outpacing wage gains. Across the nonfarm business sector, real hourly compensation fell at an annual rate of 3.1% in Q2 after a 1.4% Q1 decline, perhaps contributing to U.S. political discontent. In 2025, real hourly compensation rose 1.6% after a 2.5% 2024 increase.
Real hourly compensation in the nonfarm business sector fell 0.1% in Q2 from Q2 2025. In the durable goods manufacturing sector, real hourly compensation rose 1.7% on a year-over-year basis in Q2 but fell 1.5% in the nondurable goods manufacturing sector.
As is widely speculated, the adoption of artificial intelligence tools and models could be contributing to what appears to be a productivity revival. AI adoption is advancing rapidly, but adoption outside the technology sector is limited.
In early August 2026, the U.S. Census Bureau reported that 21.5% of U.S. firms used AI “in any of its business functions” in the last two weeks, perhaps reflecting the widespread availability of generative AI tools. In addition, during the next six months, 24.3% of U.S. businesses “think this business will be using AI in any of its business functions.”[1]
Adoption continues to increase – slowly – quarter by quarter. At the end of 2025, 17.8% of U.S. firms reported using AI in its business functions. By the end of Q1 2026, adoption increased 1.1 percentage points to 18.9% and at the end of Q2 adoption increased by another 0.7 percentage points to 20.6%.
While it’s very possible that AI adoption will result in improved aggregate productivity growth in the decade ahead – the hope of all central bankers – currently the technology sector appears to be making an important contribution to the productivity revival, with non-technology firms benefiting from the experience of their technology providers while learning from their own experiments.
[1] See https://www.census.gov/hfp/btos/data_downloads for detailed data. Beginning with the first November 2025 survey, the Census Bureau altered the wording of both questions in the bi-monthly Business Trends and Outlook Survey from a question that asked for the use of AI in “the production of goods and services” to the use of AI for “any business function.” The second October 2025 survey had reported that 10% of respondents used AI in “the production of goods and services” in the last two weeks and 14% expected to use AI in “the production of goods and services” in the next six months. From the discontinued historic data, AI “use in the production of goods and services” gained 2.3 percentage points between October 2023 and October 2024 and 4.0 percentage points between October 2024 and October 2025.
